Refining NZ Operational Update for July/August 2019

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18 September 2019

Refining NZ Operational Update for July/August 2019












COMMENTARY
Refining - Margins and throughput
The refinery achieved throughput of 7.42 million barrels due to good utilisation by our customers and
excellent refinery availability. This throughput, coupled with a GRM of USD 7.10 per barrel, has earned the
Company NZD 56.2 million Processing Fee revenue in the July/August period. Revenue showed an increase
of NZD 24 million compared to the May/June period.
The refinery achieved excellent Operational Availability of 99.8% during the July/August period.
Global refining margins
Global refining margins recovered in July across the barrel. Gasoline margins recovered to a 10-month high
of USD 8.50 per barrel due to the permanent shutdown of a key USA refinery and unplanned Asian refinery
outages. As a result, Singapore inventories fell well below the five-year average. Middle distillates reached
a year high as a result of strong demand and subdued Chinese exports. Fuel oil margins recovered strongly
by USD 6.00 per barrel due to tight supplies and sustained demand. August was a mixed month with the
gasoline margin losing some of its gains and diesel rising further to above USD 16 per barrel due to outages
in key exporting countries. Fuel oil fell strongly by USD 8 per barrel, likely driven by sentiment as supplies
remained tight.
HIGHLIGHTS
 The Company earned NZD 56.2 million in Processing Fees for July/August, NZD 24 million more
than the May/June period.
 Refinery throughput was 7.42 million barrels, the highest for 2019 which was achieved due to
good utilisation by our customers and excellent refinery availability.
 Refining NZ’s Gross Refining Margin (GRM) was strong at USD 7.10 per barrel which represents a
healthy uplift over the Singapore Dubai complex margin.
 Global refining margins were stronger in July/August as gasoline cracks recovered and middle
distillate cracks rose strongly.
 Lloyd’s Register has issued an upgraded Refinery to Auckland pipeline certificate of fitness for an
82 bar gauge maximum operating pressure. The RAP is now delivering greater flow rates and
providing increased resilience of supply to Auckland.
 Process and personal safety performance remained excellent:
o No Tier 1 or Tier 2 process safety events in the July/August period; and
o The lost time injury frequency is currently 0.27 per 200,000 work hours

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Uplift over Singapore Dubai complex margin
Refining NZ’s July/August uplift over the Singapore Dubai complex margin was healthy at USD 3.87 per
barrel enabled by a balanced product slate, locational advantage and stable operations but negatively
impacted a modest recovery in the naphtha margin. The Singapore Dubai complex margin for the
July/August period was USD 3.23 per barrel.
Exchange rate
The average exchange rate for the July/August period was USD/NZD 0.66.
Natural gas
Natural gas supplies returned to more normal levels in July/August as the Pohokura offshore natural gas
field production performance improved and Refining NZ was able to access its portfolio of additional 2019
gas supply. Natural gas prices fell more than ten percent compared to the May/June period.
Distribution – Refinery to Auckland Pipeline (RAP)
Operational availability on the pipeline was high and the volume of product delivered through the pipeline
remained strong.
Lloyd’s Register has issued an upgraded RAP certificate of fitness for an 82 bar gauge maximum operating
pressure. The RAP is now operating at the increased pressure, delivering greater flow rates and providing
increased resilience of supply to Auckland.
Government Pipeline Inquiry
Refining NZ welcomed the publication of the Government Inquiry report into the September 2017 pipeline
outage and the resilience of the fuel supply to Auckland. It is pleased that the Inquiry concluded that
Refining NZ maintained and operated the RAP properly and in keeping with all legal requirements and
standard industry practice and that the response of our staff and contractors to the pipeline rupture was of
a high standard. We are also pleased that the Inquiry has noted that Refining NZ is working to make timely
investment decisions and that we have a clear goal of having new infrastructure in place shortly before it is
needed to meet demand.
Health, safety and environment
Process safety performance was again outstanding with no Tier 1 or Tier 2 process safety events in the
July/August period. The lost time injury frequency is currently 0.27 per 200,000 work hours. We continue
to see record engagement in our hauora korero (safety talks) which, combined with the hauora hikoi
(safety walks) and E Tu Tangata (stand up people) initiatives, underpins our continued improvement in
safety performance.
Costs
Overall operating have been tightly controlled with the ongoing pressure from higher electricity prices.

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OPERATIONAL DATA

Jul/Aug
2019
Jul/Aug
2018
YTD
2019
FY
2018



Health, Safety & Environment


LTI
#
1 0 1 5
LTIF
#/200,000hrs
- - 0.27 0.48
TRC
#
1 0 1 8
TRCF
#/200,000hrs
- - 0.41 0.76
Tier I Process Safety Events
#
0 0 0 2
Tier II Process Safety Events
#
0 0 0 3
Releases outside of consent # 0 2 1 5




Refining

Brent Crude Oil Price
US$/bbl
61.52 73.49 64.89 71.2
Exchange Rate
US$/NZ$
0.66 0.67 0.67 0.69
Operational availability
%
99.8 97.0 99.9 90.7
Unplanned process downtime
%
0 0 1.3 0.8
Refining throughput
Mbbl
7.42 7.62 28.64 40.44
Gross Refining Margin US$/bbl 7.10 6.86 5.78 6.31
Gross Refining Margin
(excluding Fee Floor/Margin Cap)
US$M
52.7 52.2 165.5 255
Processing Fee (after Fee Floor/Margin Cap) US$M 36.9 36.6 115.8 178.6
Processing fee (after Fee Floor/Margin Cap)
NZ$M
56.2 54.3 173.5 258.7




Distribution

RAP throughput
Mbbl
3.4 3.4 13.7 21.0

Notes :
1. The i nformati on provi ded i n thi s announcement excl udes revenue from di s tri buti on or other acti vi ti es .
2. The Proces s i ng Fee res ul ts reported i n thi s announcement are s ubj ect to change due to pos t announcement pri ce
updates and i ndependent audi t.
3. A fi ve year hi s tory of Throughput, Margi ns and Proces s i ng Fees i s attached bel ow.
4. Refer to the expl anatory notes /gl os s ary for a defi ni ti on of terms.

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HISTORICAL INFORMATION - REFINING

2015
2016
2017
2018
2019
Ja n/Fe b
Ba rre l s 000's
7,056
6,826
7,160
7,011
6,963
RNZ USD GRM pe r ba rre l
1)
9.91
7.96
6.58
7.54
4.88
Si nga pore Duba i Compl e x GRM
5.40
4.95
3.42
3.37
-0.32
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.51
3.01
3.16
4.17
5.20
NZD Proce s s i ng Fe e (mi l l i on)
2)
59.6
57.0
45.9
50.8
34.9
Ma r/Apr
Ba rre l s 000's
7,411
7,471
5,140
6,958
7,312
RNZ USD GRM pe r ba rre l
1)
8.77
1.84
9.35
6.82
6.63
Si nga pore Duba i Compl e x GRM
4.82
3.18
3.02
3.75
0.75
Upl i ft vs . Si nga pore Duba i Compl e x
3)
3.95
-1.34
6.33
3.07
5.88
NZD Proce s s i ng Fe e (mi l l i on)
2)
62.3
14.8
48.1
45.8
50.1
Ma y/Jun
Ba rre l s 000's
6,416
6,837
7,755
3,910
6,945
RNZ USD GRM pe r ba rre l
1)
8.55
6.26
7.63
0.18
4.36
Si nga pore Duba i Compl e x GRM
4.24
2.13
2.90
2.02
0.17
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.31
4.13
4.73
-1.84
4.19
NZD Proce s s i ng Fe e (mi l l i on)
2); 5)
48.9
43.3
58.4
0.7
32.2
Jul /Aug
Ba rre l s 000's
7,519
6,833
7,511
7,615
7,419
RNZ USD GRM pe r ba rre l
1)
7.66
6.20
8.87
6.86
7.10
Si nga pore Duba i Compl e x GRM
2.52
1.86
4.70
2.57
3.23
Upl i ft vs . Si nga pore Duba i Compl e x
3)
5.14
4.34
4.17
4.29
3.87
NZD Proce s s i ng Fe e (mi l l i on)
2)
63.5
41.3
63.6
54.3
56.2
Se pt/Oct
Ba rre l s 000's
7,221
7,251
6,816
7,639
RNZ USD GRM pe r ba rre l
1)
9.47
7.49
9.31
7.09
Si nga pore Duba i Compl e x GRM
5.12
3.18
4.73
2.47
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.35
4.31
4.58
4.62
NZD Proce s s i ng Fe e (mi l l i on)
2)
71.8
52.5
62.2
57.8
Nov/De c
Ba rre l s 000's
7,017
7,447
7,342
7,307
RNZ USD GRM pe r ba rre l
1)
10.82
9.20
6.83
6.53
Si nga pore Duba i Compl e x GRM
6.37
4.19
3.67
1.80
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.45
5.01
3.16
4.73
NZD Proce s s i ng Fe e (mi l l i on)
2)
73.0
67.6
50.7
49.2
Total
Barrels 000's
42,639
42,665
41,724
40,440
28,640
USD GRM per barrel
1)
9.20
6.47
8.02
6.31
5.78
NZD Processing Fee (million)
2)
379.2
276.6
328.9
258.7
173.5
YTD Cap adjustment
14.4
NZD Processing Fee (million)
1)
1) Excl ude s Fe e Fl oor/Ca p a djus tme nt
2) I ncl ude s Fe e Fl oor/Ca p a djus tme nt
3) RNZ upl i ft vs . Si nga pore Duba i Compl e x GRM i s i n USD pe r ba rre l

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EXPLANATORY NOTES/GLOSSARY
LTI (Lost time injuries) and LTIF (Lost time injury frequency)
Lost time injuries refer to fatalities, permanent disabilities or time lost from work.
Lost time injury frequency refers to the number of lost time injuries over a rolling 12-month period,
per 200,000 hours worked.
TRC (Total recordable cases) and TRCF (Total recordable case frequency)
Total recordable cases refer to lost time injuries, medical treatment and restricted work cases.
Total recordable case frequency refers to the number of recordable injuries over a rolling 12-month
period, per 200,000 hours worked.
Tier 1 Process Safety Event (API 754)
A tier 1 Process Safety Event (PSE) is an unplanned or uncontrolled release of any material, including
non-toxic and non-flammable, from a process which results in one or more of the following: A LTI
and/or fatality; a fire or explosion resulting in greater than or equal to $25,000 of direct cost to the
company; a release of material greater than the threshold quantities given in Table 1 of API 754 in
any one-hour period; an officially declared community evacuation or community shelter-in-place.
Tier 2 Process Safety Event (API 754)
A tier 2 Process Safety Event (PSE) is an unplanned or uncontrolled release of any material, including
non-toxic and non-flammable, from a process which results in one or more of the following: A
recordable injury; a fire or explosion resulting in greater than or equal to $2,500 of direct cost to the
company; a release of material greater than the threshold quantities given in Table 2 of API 754 in
any one-hour period.
Operational availability
Operational availability is the percent of time available for manufacturing after subtracting
maintenance and regulatory/process downtimes.
Unplanned process downtime
A unit downtime is “planned” if the refinery is aware of and has scheduled that unit outage in the
previous year. Unplanned process downtime is the weighted average of unplanned downtime
across all process units.
Refining throughput
Refining throughput is the volume of feedstock intake, comprising crude oil, residues, natural gas
and blendstock, measured in barrels. One barrel equates to approximately 159 litres.

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Gross Refining Margin (excluding Fee Floor/Margin Cap)
The Gross Refining Margin is calculated in USD as the difference between the value of products and
the cost of feedstock for each refining customer. The value of products use Singapore quoted prices
adjusted for New Zealand quality and the cost of importing those products to New Zealand.
Feedstocks are valued using the notional market values adjusted for the cost of getting the
feedstock to the refinery. The Gross Refining Margin incorporates the cost of hydrocarbon used as
fuel and incurred as process losses.
Typically, Refining NZ has an uplift over the Singapore complex margins of around USD 3.00 to 4.00
per barrel. The value of the uplift varies due to fluctuations in freight rates, product quality
premium, crude market premium and operational performance. Product quality premium are the
cost differentials between products made to New Zealand quality and products made to the quality
that applies to quoted prices in Singapore. Crude market premium are the cost differences between
the crude types actually processed at Refining NZ and Dubai (used as basis for the Singapore
complex margins). Refining NZ’s crude diet comprises of crudes that price off Dubai as well as crudes
that price off different markers such as Brent. The fluctuations of these price markers relative to
each other impact the uplift.
Margin Cap/Fee Floor Adjustment
The processing agreements with our customers contain both Floor and Margin Cap clauses, both
effective over a full calendar year.
The Fee Floor is the minimum Processing Fee due, for a calendar year, up to a current maximum of
NZD 137.5 million. If the year-to-date Processing Fee is below the pro-rata Fee Floor, then an
interim pro-rata Fee Floor payment is made by the Customers. Should the Processing Fee exceed
the Fee Floor in future months any pro-rata Fee Floor payments that have been made are repaid to
the Customers.
The Margin Cap limits the Gross Refining Margin for each customer to a maximum of USD 9.00 per
barrel over the calendar year. Should the Gross Refining Margin fall below the Cap in future months
any pro-rata Cap reductions that have been made are repaid by the Customers.
The Cap and the Floor are subject to year-to-date adjustments.
Any balance remaining at the end of the year cannot be carried over to the next year.
Processing Fee (after Fee Floor/Margin Cap)
The Processing Fee is 70% of the Gross Refining Margin after any adjustment for the Margin Cap or
Fee Floor. The Processing Fee is paid by our customers in NZD.
RAP throughput
RAP throughput is the volume of refined products, comprising gasoline, jet fuel and diesel that are
delivered via the Refinery to Auckland Pipeline (RAP) to the Wiri oil terminal.